Hussam Aldurayhim Dr.

Raplh Norcio Financial Management Financial Analysis April 27 2012

Google Inc.
Google Inc., a technology company, maintains an index of Web sites and other online content for users, advertisers, and Google network members and other content providers.

In this analysis, I will be analyzing Google Inc. (GOOG), and based upon the analysis and calculations, we will see whether the stock of the company worth buying or not.

This analysis will be based on 11 metrics. They are: 1234567891011DuPont Identity 2- Current Ration 3- Acid Test Ration 4- Inventory Holding Period 5- Average Collection Period 6-Debt Ratio 7- Free Cash Flow 8- Market Value Added 9- Economic Value Added 10- Dividend Yeild 11- Required Rate of Return

* Numbers used in the analysis are brought from Yahoo Finance (www.finance.yahoo.com) And from YCHARTS (www.ycharts.com)

1- DuPont Identity

*Numbers in Thousands

Return on Equity = Income after taxes/Sales * Sales/Total Assets * Total Assets/Equity = 9,737,000/37,905,000 * 37,905,000/72,574,000 * 72,574,000/58,145,000 = .2569 * .5223 * 1.2482 = 0.16 This ration is an indication of the management performance. This ratio can go up because of having more debt. However, Google does not have that much debt and has a good rate of return. So, Googles management is performing very well on in this case.

2- Current Ratio Current Ratio = Current Assets / Current Debt = 52,758,000 / 8,913,000 = 5.919 The ideal ratio in the market is 2. A ratio of 1 means that the company has liabilities as much as assets, and if company has a ratio of less than 1, that company could have some problem dealing with debt in the short term. Anyhow, Google having a too high ratio means that Google is not using its assets effectively. However, having a too high ration is not as having a low one. So, its on the safe side, not the ideal. 3- Acid Test Ratio Acid Test Ration = (cash + Account Receivable + Short-term Investments) / Current Liabilities = (9,983,000 + 6,387,000 + 34,643,000) / 8,913,000 = 51,013,000 / 8,913,000 = 5.723 This ration is defferent than the Current Ration. It shows how well the company is able to meet shortterm liabilities. If a company has an ATR of higher than 1.0, that is ideal. Google obviously has a very high number, which that it pays its debt easily. And, it quickly converts receivables into cash. That is a sign of a healthy cash making. 4- Inventory Holding Period Google Inc. does not have an inventory, so there is no inventory period. However, Google Inc. is calling upon retailers to list its inventory to be accessible to public. Google Calls Upon Retailers to List Inventory ( http://www.webpronews.com/google-calls-uponretails-to-list-inventory-2010-09 )

5- Average Collection perion = Days of Inv. * Account Receivables / Credit Sales Obviously, this rate is dependent on having an inventory in the firm. So, its not available, too. 6- Debt Ratio Debt Ration = Total Debt / Total Assets = 14,429,000 / 72,574,000 = .1988 Google Inc. has a very low debt ratio. A debt ratio of less than 1.0 shows a good financial health of a company. Googles rate is very low. It means that Google has 19 cents in debt for every dollar in assets. * Numbers in Thousands

7- Free Cash Flow Free Cash Flow of Google Inc. = 3,087,000 As we see, cash flow is pretty high for GOOG. This means the company is able to generate cash, and thats a good indication of a powerful and healthy company. 3 Billion is way higher than the average in market.

8- Market Value Added

* Numbers not in thousands

MVA = {number of shares * market price per share) {common stock + retained earnings} MVA = {323,890,000 * 614.98} {20,264,000,000 + 37,605,000,000} = 199,185,872,200 57,869,000,000 MVA = 141,316,872,200

141 Billion Dollars is a very high number to be considered as market value added. In the market, the higher MVA, the better the companys health. Google is showing its power through numbers.

9- Economic Value Added EVA = EBIT (1-t) [Investors Supplied Capital * Cost of money] = 12,326,000,000 (1-.21) [23,250,000,000 *

10- Dividend Yield Dividend Yield of Google Inc. (GOOG) is 0%. This company does not pay dividends, and it hasnt paid any dividends since 2007. So, based on this metric, this is an opportunity for a long term investments. Also, It shows that Google Inc. is investing the money instead of paying dividends, generally, not paying dividends attracts investors as they have some courage to invest in investing or establishing companies.

Based on all of the calculation above, Google Inc. is proving a very healthy stock. All of the metrics I used showed positivity of GOOG. One of the metrics did not really work for Google which was the current ratio. It showed that Google Inc. is not using its assets to the full benefit. Its like if they do not invest greatly. It might be a sign of recession or stagnancy. However, its not a side of fear or doubt of the companys health. So, I recommend buying, for there is no fear of collapsing. From another perspective, Google is a trust worthy company, and by analyzing and looking in the technology industry, you can predict some rising of the company. I can say that its taking over in the technology field. Precisely, their product are always improving. YouTube, Gmail, etc. are good examples of its products. In this way, those successes will have a good impact on the stock prices, and thats another reason why I recommend buying (GOOG).